Wealth Transfer Planning: A Case Study for a Blended Family

Blended families are not uncommon these days. But this complicates estate and wealth transfer planning because there are typically multiple heirs from different bloodlines involved. And when there is real estate and/or business interests to consider, things get even more hairy. Maintaining control over this type of estate to meet primary goals can still be simple but it’s not always easy and does take some work.

Take this example:

Jay and Gloria are husband and wife

Each has children from a prior marriage

They have their own financial accounts as well as a joint account

Their estate goals are to first care for each other and second to pass assets to their respective children

Their home is in Jay’s name, which he intends to leave to Gloria

They both agree that any assets left to their grandkids should be held in trust until each reaches age 25

Currently they each have the “I Love You” will that states “leave all my assets to my spouse and then to my children equally”

If this arrangement is listed on their accounts, see now how Jay’s assets transfer when he passes away.

Their joint bank account becomes Gloria’s. His non-retirement investment account without a named beneficiary becomes Gloria’s too. The beneficiary on Jay’s IRA is the standard language: Spouse is primary beneficiary with his two children all listed as equal part, contingent beneficiaries. So at Jay’s death this goes to Gloria too. Perhaps you see the problem here. Jay has indirectly disinherited Claire and Mitchell.

Here are a couple very simple solutions to Jay and Gloria’s situation.

1) Jay could enlist the help of an estate attorney to draft some sort of marital trust. Having this trust will allow Jay to transfer assets at his death to said trust in order to support Gloria for the rest of her lifetime but then ensure the remaining assets go to his heirs, Claire and Mitchell.

2) Jay could also attempt to acquire life insurance to split his estate. By carving off parts of his IRA over his lifetime, Jay could attempt to leverage premium payments into a tax-free death benefit for Claire and Mitchell. While this may reduce the estate for Gloria, if Jay is confident that she will be adequately cared for through other assets, this process could meet the goal of ensuring a legacy for Claire and Mitchell.

3) Jay and Gloria could agree to begin gifting part of their intended inheritances to their children throughout their lifetimes. If they determine that they will not need all their assets to support themselves or each other, they could begin gifting $14,000/year to each heir without surpassing the annual gift exclusion amount. They could also make payments, on behalf of the grandkids, directly to qualifying institutions to reduce the estate further without using lifetime gift exclusions. This would allow Jay and Gloria to leave their estates to each other at death but ensure that their children and grandkids get part of the inheritance too. And here, they get to witness the benefits of their gifts while still living.

4) Finally on an even more basic level, Jay could segment his assets by listing multiple primary beneficiaries on his accounts. This may serve the purposes of providing his children with an immediate legacy at his death, instead of waiting until Gloria passes. Jay should proactively consider who pays what in taxes and what his heirs may want, to ensure the estate plan does not create a discord among the beneficiaries. As long as Jay and Gloria review their beneficiary designations regularly to account for changes in account values, this most basic plan would work to meet their primary objectives.

The point here is this: while we have introduced some more complex ideas throughout this series, often, the most basic plans work. Wealth transfer doesn’t have to be complicated or involve lots of legalese. But it still takes work to think through your wealth transfer plans and then decide and adequately document your wishes.

*This is a hypothetical example and is not representative of any specific advice. Your results may vary.*

Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a registered investment advisor. US Financial Advisors and Haas Financial Group are separate entities from LPL Financial.

This information is not intended to be a substitute for individualized legal advice. Haas Financial Group and LPL Financial do not provide legal advice or services. Please consult your legal advisor regarding your specific situation.